More bad news for Mauritius - steep increase in personal tax and another DTA cancelled

The proposed increase to the solidarity levy, i.e. the additional tax levied on individuals who earn income above Rs3m (approximately $75k) remains at 25%, albeit capped in certain instances, and termination of Senegal/Mauritius DT

The Finance (Miscellaneous Provisions) Bill was released last week in Mauritius. This Bill confirmed the various tax amendments which were announced previously, most notably, the solidarity levy and the pension fund contribution amendments. The cumulative effect of these amendments to the solidarity levy and the pension fund contributions result in a significantly increased tax cost for individuals in Mauritius.

Solidarity levy

The final legislation confirms the solidarity levy rate will be increased from the current 5% to 25%, despite discussions around it being reduced to 10%. It will also apply to all Mauritian tax residents, not just citizens. The commitment by government that the levy would be capped at 10% has actually translated into the levy applying at 25% but the total levy being capped at a maximum rate of 10% of the aggregate of net income plus dividend income.

This means that the top tax rate will still be 40% on certain income (i.e. 15% plus 25% solidarity level where the cap does not apply), which is a significant increase for Mauritius.

Further, it seems to disproportionately penalise individuals who earn closer to the Rs 3 million mark than those individuals earning a higher income. Essentially, the 10% rate cap will only apply to individuals earning Rs 5 million or more, resulting in a higher percentage solidarity levy being paid above the threshold by individuals earning between Rs 3 million and Rs 5 million than those earning in excess of Rs 5 million.

It is expected that the legislation, which is already in effect, will be debated further due to the scale of the impact, particularly when viewed in light of the pension changes, which in effect also increase the tax burden.

Pension fund contributions

In addition to the solidarity levy changes, changes have also been made to the Mauritius national pension fund. The current pension fund will be replaced with a new system, Contribution Sociale Generalisee (“CGS”), with effect from 1 September 2020.

The new contribution rates will be lowered for employees earning less than MUR 50 000 per month to a rate of 1.5% for employees, and 3% for employers. Employees earning more than MUR 50 000 per month will be liable for the same contribution rates as is currently levied (i.e. 3% for employees and 6% for employers). However, the monthly contribution threshold of Rs 18 740 which previously applied will no longer be applicable, resulting in an uncapped contribution on an employees’ total basic salary.

As very little is obtained through this “pension” this is effectively another form of taxation, and the cumulative impact of the increased solidarity levy and the pension fund contribution amendments result in a very significant tax cost increase for individuals in Mauritius.

Cancellation of the Senegal/Mauritius double taxation agreement (“DTA”)

The cancellation of the Senegal/Mauritius DTA came into effect on 1 July 2020 for Mauritius.

Senegal notified Mauritius of its intention to terminate the DTA in June 2019, with Mauritius confirming the termination of the DTA the following month. The DTA terminated with effect from 1 January 2020 for Senegal and is now terminated for Mauritian tax purposes as with effect from 1 July 2020. The two countries are currently entering into negotiations for a new DTA.

Overall, higher costs and more instability for Mauritius at an already challenging time.

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